Saturday, March 3, 2012

LIC ploughs in more than Rs.12,000 crore

Ashok Dasgupta

After a day of confusion, supposedly owing to technical glitches, and state-owned insurer Life Insurance Corporation (LIC) coming to rescue the 5 per cent stake sale of ONGC through the auction route, the government on Friday announced that it had received an average price of Rs.303.67 for a share of the oil major, which is 4.71 per cent higher than the reserve price, to mop up a total of Rs.12,766.75 crore.

Giving the total number of accepted and rejected bids on offer in an official statement here, the Finance Ministry said: “The volume weighted average price (of ONGC shares) was Rs.303.67 a share against the floor price of Rs.290.”

Facing a severe crunch of funds, the government had opted for the auction route, more as an ‘experimental' case to dilute 5 per cent of its stake in ONGC.

During the auction on the BSE and NSE platform, a total of 3,982 bids for over 54 crore shares were received. However, 1,219 bids, accounting for about 12 crore, had to be cancelled for a number of reasons, a major one being insufficient funds.

Thus, there were there were 2,763 valid bids for 42.04 crore ONGC shares while 44.77 crore shares were on offer.It is evident that the auction evoked a tepid response from investors at large, mainly FIIs, and the LIC had to bail out the issue in the last minute by buying out nearly 41 crore shares.

Official sources confirm that LIC ploughed in more than Rs.12,000 crore to purchase 95 per cent of the ONGC's equity stake on offer. The state insurer purchased 40 crore shares, ostensibly owing to the fact that there was no participation from FIIs and also retail investors, who were looking for a discount on the market price of ONGC scrips.

Giving details on the auction, Disinvestment Secretary Haleem Khan said: “We got bids for 42.1 crore shares ... it comes to 98 per cent (of the issue size). In terms of volume, we received bids worth Rs.16,460.2 crore and out of that Rs.3,693.29-crore worth bids were rejected. Bids worth Rs.12,766.75 crore were accepted.''

On the face of it, the acquisition by LIC is already in red ink as ONGC shares ended trading on Friday at Rs.281.45 a share, down 2.22 per cent from the previous close on the BSE.

Market analysts are of the view that the government should do its homework better on the pricing of shares on the auction route in future as anything close to the prevailing market prices would tend to evoke lukewarm or no response.

Not without reason that earlier during the day, Finance Minister Pranab Mukherjee announced that the government has decided to study the auction process before going ahead with the stake sale of other companies. “This (ONGC auction) is the first case. We shall have to analyse and then make an assessment,” he told reporters the media here.

With the mop-up through ONGC disinvestment in the kitty, the government has managed to garner a total of about 13,878 crore till date during the current fiscal as against its Rs.40,000 crore.

It now remains to be seen whether the government goes ahead in future divestment through the auction route or the PSU buy-back route that has now been accorded approval.